Remedies FOR Breach OF Contract PDF

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REMEDIES FOR BREACH OF CONTRACTLecture objectives Distinguish between the different remedies following a breach of contract [BoC].  Identify the contractual provisions designed to regulate the consequences of a breach.  Describe which remedies are mutually exclusive & which are cumulative...

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REMEDIES FOR BREACH OF CONTRACT Lecture objectives   

Distinguish between the different remedies following a breach of contract [BoC]. Identify the contractual provisions designed to regulate the consequences of a breach. Describe which remedies are mutually exclusive & which are cumulative.

INTRODUCTION It is imperative to distinguish between the various remedies available in respect of a breach of contract. Moreover, to identify contractual provisions which are essentially designed to both regulate the breach’s consequences as well as describe which of those remedies are cumulative and mutually exclusive. Every contract is required to be fully performed. This is essentially what both a contract and agreement entail wherein parties agree to something and thereafter give effect to such agreement. A contract will essentially come to an end naturally and lawfully in instances where both parties rendered full performance. Importantly, a breach in respect of a contract takes place when the contract’s natural life is essentially interfered with which amounts to its early termination. In light of this, it is clear that parties do not necessarily anticipate breach. Rather, breach is something that is ultimately something which was essentially never initially intended to occur.

TERMINATION OR ENFORCEMENT OF A CONTRACT Significant to note is the fact that enforcement of a contract, or rather the termination thereof, may occur in two ways, being a breach by a party or normal termination.

NORMAL TERMINATION In respect of normal termination, two options exist. The first one being termination by performance and the second one being termination by way of agreement.

Termination by performance Termination by performance entails instances wherein the contract naturally and lawfully comes to an end due to the contract having been given effect to.

Termination through agreement When it comes to termination by way of agreement, both parties essentially agree to have the contract come to an end or conclusion by way of an agreement.

TERMINATION BY OPERATION OF LAW & BREACH OF CONTRACT Another form of normal termination would be where the contract is essentially terminated by operation of law. Conversely, another way wherein a contract may be terminated would be where there is a form of breach made by a party. In respect of this, an important question is to be considered, being: whether the innocent party is essentially entitled to cancel the contract / agreement.

Where the answer to this question is no, the innocent party then has two options. The first being that s/he may institute a claim for specific performance as well as damages. The second being that the innocent party is able to raise a defence, being the exceptio non adimpleti conctractus (ENAC) defence. However, where the innocent party is actually entitled to essentially cancel the contract/agreement, such innocent party may either elect to either claim for specific performance along with damages or to cancel the contract/ agreement as well as claim damages. FOLLOW DIAGRAM BELOW WHEN DEALING WITH SUCH DAMAGES

REMEDIES When considering remedies it is important for one to distinguish between both cumulative and exclusive remedies. Exclusive remedies essentially entails the enforcement of an interdict, specific performance as well as the exception non adimpleti conctractus defence. Conversely, the remedy is also capable of being aimed at the termination of the obligations through cancellation. Cumulative remedies entails the claiming of interests or damages and is essentially aimed at compensation.

EXCLUSIVE REMEDIES 1. EXCEPTIO NON ADIMPLETI CONTRACTUS 

The exception non adimpleti conctractus is considered to be the first remedy in that it amounts to a temporary defence which is capable of being raised by an innocent party in instances where performances where promised in exchange for one another (reciprocal agreements) – confirmed in the BK Tooling case. Thus, parties both perform and therefore there is an exchange of performance.

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Essentially, it is an agreement which is reciprocal.

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The ENAC ultimately permits or allows for a party to withhold his / her own performance

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Thus, an innocent party may ward off the other party’s claim for performance until such performance is ultimately made. In light of this, one party may therefore refuse to perform where the other party has to yet perform and this is basically to enforce the latter party to make his / her performance.

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The ENAC is thus ultimately aimed to both secure and ensure both proper and full performance from the other party who has yet to perform.

Bk Tooling (Edms) Bpk v Scope Precision Engineering (Edms) Bpk In the case of BK Tooling (Edms) Bpk v Scope Precision Engineering (Edms) Bpk, the original claim in respect of payment met by exceptio.

Requirements for Exceptio non adimpleti contractus There are three requirements in respect of the ENAC. 1. The first one being that reciprocity of obligations is required to exist. 

Reciprocity only exists between obligations which were essentially undertaken in exchange for one another or rather, another obligation. To determine whether an obligation is reciprocal, one has to look at the parties’ intentions and ask ‘was it the parties intention to create the obligations so as to be in exchange for eachother?

2. The second one being that a sequence of performances is required to exist. 

The general rule is that the parties are required to perform pari passu (side by side) unless it was otherwise agreed upon by the parties or unless the naturalia (if there’s no specific agreement) contained within the agreement or contract dictates otherwise, this being where the parties agreed on such. Thus, we look at the intention of the parties and question whether they intended to change the sequence of performance. This is done by interpreting the contract.

3. The third one being that there is required to be incomplete performances wherein the debtor failed to perform or perform properly, in other words mora debitoris. Additionally, where the other party failed to properly perform, in other words mora creditoris.

The principle of reciprocity In terms of this principle one party is not entitled to claim performance in respect of a reciprocal obligation from the other party where the first party is required to perform his or obligation either simultaneously or first. This results in the second party being entitled to withhold his or her performance unless or until the first party fully performed. This applies unless the first party performed already or his or performance is being tendered in respect of his or obligation. Example: An example would be one within the landlord and tenant framework wherein a lessor is supposed to maintain the dwelling, which is an obligation, it is a requirement in terms of land lord (?) law. Where the lessor does not maintain the dwelling and due to his failure to performance, the lessee simply withholds rent and is entitled to do so until the lessor performs and maintains the dwelling. 

It Is essentially an enforcement mechanism

Factors affecting the application of the exceptio 

There are essentially various factors which effect the ENAC’s application.

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The first one being the acceptance of part-performance. This is where a party started using the performance which was defective and thus serves as a strong indication that such a party ultimately elected to keep such contract in tact.

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In light of this, such a party which made such an election thereafter cannot cancel such contract except where there is a material breach pertaining to the contract.

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The second one being defective performance and the cancellation of the contract or agreement.

Where these factors are present, one cannot make use of the ENAC.

BK Tooling case In the BK Tooling case, the court stated that where the contract is essentially cancelled for a material breach, the ENAC can then not be raised as a defence. This is due to the fact that one is required to distinguish carefully between circumstances wherein the contract is kept alive and thus the ENAC may be employed so as to fight off claim in respect of performance and where the contract is actually cancelled due to a breach taking place. This is important because in the latter instance, the ENAC cannot be raised as the cancellation is ultimately aimed at the contract’s fulfilment. Thus, the ENAC will find no application as it would not be a suitable defence in the sense that there would no longer be any performance owed based on the contract being terminated. If the contract is cancelled, the parties’ obligations to perform will be terminated and each party will have the obligation to return performance that they have received. These obligations due not arise from unjustified enrichment and are deemed to be contractual in nature.

Court’s equitable discretion: reduced contract price It is imperative to take cognisance of the equitable discretion of the court in respect of a reduction of the contract price. Courts can exercise discretion so as to both relax the principle of reciprocity as well as order that the party who is making use of the part performance to essentially paid a reduced price. The reduced amount in this instance is commonly determined by way of deducting the cost of remedying the defect from the contract. This was decided in the BK Tooling case. The plaintiff is required to both allege & prove: 

That the employer, to his advantage, utilised his work even where it fell short of the standards required.

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The cost of both supplementing shortfalls and remedying defects.

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Moreover, that to award the contractor some remuneration would be equitable.

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Furthermore, that by taking into account all the circumstances, it provides that court should exercise discretion in its awarding of the contractor of a price that is reduced.

Bk Tooling (Edms) Bpk v Scope Precision Engineering (Edms) Bpk In the BK Tooling case, one party was required to manufacture certain moulds while also complying with heavily strict specifications. The other party was going to use the moulds in the manufacturing process. After the moulds were delivered, it was found that it failed comply with the heavily strict specifications. A third party had to modify the moulds. In light of this, it was impossible for the original party to essentially rectify the defect pertaining to performance. 

The exceptio met the original party’s subsequent claim for payment.

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It was evident that the innocent party accepted the defective performance and began using such moulds without having paid for the work that was done.

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It was held by the court that, in light of this, a reduced contract price was entitled to the party in breach. Moreover, the costs pertaining to the remedying of the defects of the moulds as performance constituted an equitable reduction within the circumstances.

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The court further stated that a clearly drawn line between cases wherein the contract was cancelled and the subsequent claim was based upon principles of the law of unjustified enrichment law, and cases wherein the contract remained intact but ultimately became either impossible or difficult to fulfil.

Scope of exceptio – when it can’t be used The scope of the ENAC provides that it is a temporary defence which is aimed at obtaining proper and full performance and thus amounts to an enforcement action. The party who ultimately relies on ENAC should allow the breaching party to first remedy the effect, complete the performant and/or provide a substitute performance.

S56 (2) of CPA provides that it is the decision of the consumer to decide whether or not s/he wants a replacement, refund or even repair of the goods. The right to withhold performance is extinguished as soon as the performance is properly completed as there is no longer any use to withhold performance. Importantly, where the failure to perform at all or to perform properly is excused by law, the ENAC finds no application. Nor can it be raised where the party who wishes to make use of the ENAC runs the risk of defective performance on his or her part. If a party elected to have the agreement cancelled, the ENAC cannot be raised because there would be no need for it as there would be no performance to enforce.

2. Specific Performance Specific performance (SP) refers to an order of court which compels the party in breach to essentially perform what s/he has initially undertaken to do. It serves as a primary remedy for a breach of contract and this is due to the fact that the aim of it remains to essentially give effect to the intention of the parties as well as the agreement existing between the parties. Thus, in terms of SP, each party is essentially entitled to insist on the full and proper performance undertaken by the other party. It serves as a point of departure which is based within the sanctity of contract. The parties are essentially required to fulfil their contractual undertakings as agreed upon. The idea of SP or rather the notion behind it is for parties to honor the agreement as well as the undertakings applicable thereto and to give effect to the agreement’s terms.

BENSON V SA MUTUAL LIFE ASSURANCE SOCIETY (1986) 1 SA 776 In the Benson v SA Mutual Life Ass case, the court reasserted with force that is in principle that contracting parties have a right to specific performance. However, that this is subject to the court’s overriding discretion only being to refuse the order within appropriate cases as specific performance is not absolute. Moreover, specific performance cannot be used capriciously nor arbitrarily and where one relies on specific performance, one needs to tender his or own performance as well.

What are the grounds in terms of which a Court can refuse Specific Performance? The general rule provides that a court may order for specific performance to be made however there are exceptions wherein this simply cannot be done as per the Benson v SA Life Ass case. Thus, specific performances essentially amounts to a discretionary remedy wherein the performance is essentially impossible or where the order would be unfair to either a third party or the debtor.

Circumstances where Court may exercise its discretion to refuse an order for SP These circumstances proving to be exceptions include 1) Where the debtor is insolvent or where the performance is impossible, thus where inequity may arise. In such cases, equal treatment should be given to the concurrent creditors. 2) Instances where the order would be unfair to either third parties or the debtor, for example, a form of undue hardship.

Haynes v King William’s Town Municipality 1951 (2) SA 371 (A) – undue hardship In the case of Haynes v King William’s Town Municipality, the court held that specific performance is subject to the court’s discretion and, by way of influence through English Law, it is considered to be a discretionary remedy that may be refused in terms of public policy or equity. The respondent, being the municipality, bounded itself by way of a contract and undertook to release to Haynes 250 000 gallons of water per day. However, the respondent failed to honour this undertaking and essentially obligation in a time where there was unprecedented and severe drought. Haynes’ claimed for specific performance of such water. However, this was refused on the basis that such an order would bring undue hardship onto the community of King William’s Town and not only the respondent and thus would not be in the public’s interest in light of the severe drought. Moreover, that the respondent essentially had a public duty towards the community and its citizens to render a sufficient supply of water. Important to note would be the straddle divide between private law and public law in this instance. This is because the municipality has public duties in respect of the Constitution as well to provide such citizens with adequate water supply and goes to show how sometimes, despite contractual obligations, a public duty in the interest of the public may take preference. 3) Personal services is another circumstance where a court may exercise discretion in not enforcing an order of specific performance Courts will outright not enforce an agreement in respect of employment or for the rendering of personal services. The rationale behind this, as provided in the Benson v SA Life Ass case, is that such contracts are continuing in nature and would be in threat where there is constant disputes, something that the courts are ill-equipped for in respect of supervision thereover so as to prevent them However, this view was essentially, yet correctly, rejected in the case National Union of Textile Workers v Stag. In this case the court held that there ought to be no reason from the departure of the general rule that a party is essentially entitled to enforce his or her contract subject to the discretion of the court. Further, it held that the reasoning as to such enforcement potentially being difficult is not in accordance with SA law and is actually a rule in terms of English Law.

Santos Professional Football Club (Pty) Ltd v Igesund 2003 (5) SA 73 (C) In the Santos Professional Football Club case, a notice termination was given, by a coach of a professional football team, to the club that he was presently coaching (being the Santos) so that her could coach a different club (being Ajax) that was within the same football league. The court held that Santos could not be denied of its ordinary remedy on the mere basis that the coach may possibly nor give proper performance and that such was essentially a factual issue that may arise in the future only. In light of this, it was ordered that the coach was to return to Santos on the basis no inequity or undue hardship would arise in forcing the coach to fulfil his contractual obligations. The judgment in the Stag case has been followed to the extent where the Labour Court now makes order for specific performance in respect of contracts of employment. Thus, this should be considered as the new position.

REQUIREMENTS FOR SPECIFIC PERFORMANCE The requirements for specific performance would be that the plaintiff is required to have either already performed or is ready to perform. The defendant is required to be in a position to perform The order for specific performance cannot be contrary to public policy and may be refused on basis of public policy or equity.

Cancellation Cancellation would be the third remedy which is aimed at ultimately the termination of the agreement. It is well established that, at any time, parties can cancel the contract. In respect of a breach of property the unilateral cancellation made by an innocent where there is a breach of contract is considered.

Cancellation is considered to be a severe step by way of bringing the transaction and contract to a premature and abrupt end. Thus, cancellation is only at the disposal of An innocent party in exceptional circumstances.

WHEN CAN CANCELLATION TAKE PLACE An innocent party may cancel a contract or agreement in terms of a cancellation clause (lex commissoria) or where there is a breach that is material. Thus, the innocent party may either elect to cancel the contract, and has a reasonable period in which to do so, or to affirm the contract.

When does the cancellation take effect? Cancellation takes effect on the service of the notice of motion or the summons where a notice is given.

Generally, there is no need for a court order A court order may be necessary to obtain where the bre...